Depreciation is
A)an effort to achieve proper matching of the cost of operating assets.
B)an accumulation of funds to replace the related plant asset.
C)the difference between the original cost and salvage value of an asset.
D)the cash allocated each period to maintain a plant asset.

Question

Quizplus · Accepted Answer

Depreciation is the process of allocating the cost of a plant asset over its useful life to match the cost of the asset with the revenue generated from its use. This is done in order to achieve proper matching of the cost of operating assets. Option B is incorrect because accumulation of funds to replace the related plant asset is known as a sinking fund. Option C is partially correct but not a complete definition of depreciation. Depreciation is calculated as the difference between the original cost and salvage value of an asset spread over its useful life. Option D is incorrect because the cash allocated each period to maintain a plant asset is called maintenance expenses.

Depreciation Is